Examination of Witnesses (Questions 260-279)
ADVANTAGE WEST
MIDLANDS
12 MAY 2008
Q260 Chairman: Gentlemen, welcome to
the second part of this evidence session. I am sorry we are running
rather late, but it was an interesting session; we found it really
valuable. If we can all be quite economic with our questions and
our answers, I think that would help us make sure we are not too
late for Warwick University, our next stop. I was very grateful
for your written submission, which I have read. You suggest that
there is a limited role for Advantage West Midlands within the
economy because ultimately market forces dictate your direction.
Can you explain to me how you reconcile that with your really
quite interventionist agenda?
Mr Laverty: I am not sure that
is what we meant, and if that is what you have inferred from our
submission it is slightly different from what we meant. What we
said is it is very difficult for us, over a short period of time,
or for any public sector organisation to change the structure
of a region's economy. We have no pharmaceuticals industry, no
oil and gas, no merchant banks, the typical high value added sectors,
and it would take some time to build up specialisms in those areas,
if we could indeed do that at all. I think what we said is a role
for Advantage West Midlands and other public sector organisations
working in partnership with Advantage West Midlands is to build
on the strength we have and improve the base of businesses we
have, so there are some things we are doing around energy technology,
for example, to try and look to some of the high value added sectors
of tomorrow, energy futures, energy activity, particularly with
the East Midlands Development Agency securing the Energy Technology
Institute as a good example in the Midlands, but the big task
for us is to work with the current business base and move that
business base as a high value added chain in terms of product
services and the skills of its work force.
Dr Hutchins: For example, through
the work we have been leading with the Manufacturing Advisory
Service in the West Midlands, which is widely regarded nationally
as one of the best Manufacturing Advisory Services, MAS has been
working with a company called Bromsgrove Glass, a traditional
window manufacturing company, a relatively large employer, and
they have been trying to diversify, implement new technology,
and have been working with the Manufacturing Advisory Service
through its Product Innovation Consortium to move into new areas
where investment in R&D and innovation is critical.
Q261 Chairman: So you have to take
the world as it is, or the region, not as what you might like
it to be?
Mr Laverty: We have one eye on
tomorrow and trying to work towards a positive future, but are
working here with the Midlands today and trying to change them
as well.
Q262 Roger Berry: You made a point
stressing at the outset that the West Midlands has a poor overall
track record in innovation. What are the reasons for that?
Dr Extance: One of the glaring
statistics is the business expenditure on R&D, where we are
seventh out of ninth, but we have already said that we are not
well represented in the oil and gas industry or the pharmaceutical
industry which, of course, are sectors very largely responsible
for large chunks of business expenditure in R&D. If you then
add on to that the fact that we do not have the big government
research centres, the public sector research laboratories. We
do have things like QinetiQ, who are a major source of R&D—I
think you are visiting them tomorrow—and are responsible
for very significant and world class social development, as are
Jaguar and Land Rover, and, indeed, many of the aerospace companies
that you all know of. One of the challenges is the measurement
of innovation by the business expenditure in R&D, that is
the classic challenge which we refer to in our submission. That
is how you measure innovation as opposed to the input measures
of research and development, and that seventh out of ninth of
course is very misleading, particularly if you then look at the
service sector, or something like digital media. There we have
just announced a major investment with Channel 4, a £5 million
investment by AWM matched by Channel 4, to develop innovative
digital media in the region, and that would not have been measured
in the traditional R&D statistics, it would have been seen
as production though, in fact, of course, in that service-orientated
sector it is effectively research and development.
Q263 Roger Berry: Yes, you do make
the point that investment R&D is a proxy, though arguably
not a very good one, for innovation. In terms of your role as
an RDA in improving innovation in the West Midlands, what do you
see as your main levers? What are the levers you can pull that
you think are most effective in improving innovation?
Mr Laverty: I think there is a
basket of levers we have tried; there is no one lever we use.
There is a range. You might have heard of INDEX vouchers that
we have introduced which were piloted over the last couple of
years, and we are rolling that out now. It has been quite a success.
Our mission is to try and commercialise some of the science and
technology that is buried in some of our universities and research
establishments by connecting it with business organisations, so
there is a classic example of trying to get businesses, universities,
and higher education establishments to interact and collaborate.
We are not pretending a £3,000 voucher is going to lead to
world-breaking innovative activity but it might be the start of
a relationship that does just that, so that is the intention behind
that. We have also on a slightly larger scale done something called
Science City, which is a project we are working on with Warwick
and Birmingham Universities. That is an £80 million project
trying to get two of our most prominent research organisations
in the West Midlands to collaborate and use their complementary
strengths to produce the demonstrator activity and to try and
articulate the benefit of some of these technologies to the businesses
in the region to try and do something to technology transfer activity.
That is another strand of what we do with these technology transfer
partnerships, and then very specifically we do things like work
with organisations like QinetiQ to drive out in a project, in
this instance a Sensor project, some well-established technology
that is buried in QinetiQ and try and embed that in West Midlands
business organisations to drive up the value of what they do.
So there is a wide range of things we do, and not least we should
not forget about the skills agenda. We see the two big challenges
in this region are low levels of innovation and lower levels of
high level 4 and above skills. Now, there is a good correlation
between successful companies and those companies that invest in
their workforce and invest in their products and services, so
at the same time as we are trying to encourage people to innovate
we are also trying to encourage them to take on graduates or invest
in their workforce to try and attack it from that end as well.
Q264 Roger Berry: In your submission
to the Committee you write that there are numerous examples of
world leading companies in the West Midlands, you mentioned QinetiQ,
Jaguar, Land Rover, et cetera, and you have described your
work with QinetiQ, but with these world leading companies that
are in the West Midlands, what is your role? Are there some of
them that are simply self-motivating, self-innovating, who do
not need your expertise, but others that do need your expertise
for particular niche activity? Your work in QinetiQ is part of
that, presumably. Do you see your job to back these winners, or
do you see your job more to help those SMEs that are not yet in
that category?
Mr Laverty: I think the first.
It is a bit like a marriage bureau role, you are in between the
businesses and the organisations that have the research establishments
and the higher education establishments, and you are trying to
bring them together and encourage them to collaborate in whatever
way you can. If you take the Sensor project at QinetiQ there were
a number of facets to that project. First and foremost, QinetiQ
are very important to us in this region. They have 2500 people
down at QinetiQ doing the jobs we are trying to attract, so first
and foremost we are trying to keep QinetiQ happy and make sure
we have our arm around them and they feel valued and wanted. Secondly,
on that particular project they have a lot of technology that
is commercially applicable, but have no particular incentive themselves
to work with small businesses in the West Midlands, other than
for altruistic reasons which clearly are not very forceful, so
we got in the middle of them and the businesses who could benefit
from that collaboration and made it worth their while, took some
of the risk out of it and put some momentum into it to encourage
people. So that is an example of what we see our role to be. It
is a bit like the INDEX vouchers—we are between the organisations
who have got the intelligence and the research and the organisations
who need it, and are trying to encourage that collaboration.
Dr Extance: If I may, there are
two major roles I see from innovation: one is stimulating demand
from those businesses who would not naturally innovate who need
a little bit of a kick to encourage them to think about innovation,
and the voucher scheme is important. The innovation advisory service
that we are piloting again is about getting companies to think
about innovation—in a fairly broad way, not just about science
and technology—but the second one is clearly to make sure
that our science and technology base is fit for purpose in terms
of engaging the businesses, and is doing things that the business
community and the region is interested in, and they are capable
of really interacting properly with businesses, so the scientific
work we have done. We are also working on the manufacturing and
technology centre with Rolls Royce Aerospace and a number of other
senior big players, JCB and others, to establish a centre which
is about that middle ground between basic research and production,
which is about taking technology, showing it in pre-production
environments, demonstrating how you can take research through
to product, and that I think is a role for us, very much to work
with companies, to take the basic research that the Government
research councils have funded, and translate that through to readiness
level appropriate to businesses in the region.
Mr Laverty: Mr Chairman, we have
produced a little brochure, Harnessing Knowledge. Creating
Wealth, which shows what we have done with the regions and
it shows basically all the things we do over a variety of projects,
and gives you a very good flavour of the broadness and type of
our interventions.
Q265 Chairman: I just got a bit depressed
as I sat there and listened to you because you have no pharmaceutical
business, no big financial services sector, we have not got—correct
me if I am wrong—a large information technology sector yet
either, it is developing in places like Cambridge obviously who
are well ahead of us there. What we have got is a huge tail of
automotive-related industries because the big producers typically
left the West Midlands, Rover and Peugeot have gone, they are
elsewhere, in Swindon, Newcastle, and Derby, and we have a huge
tail of metal-bashing companies, typically family owned, less
enterprising, so it is a bit of a challenge. What kind of higher
added value can be achieved in this region with its history and
legacy? It used to be the workshop of the world.
Mr Laverty: It is a challenge
but it is one that we are positive about, I think this region
has lots of unique skills we can build on. The automotive industry,
of course, had some very positive news recently with Tata taking
over JLR; that is a company that is developing world-class vehicles,
it has a large R&D centre down in Gaydon and we are talking
to Tata at the moment, and have been for some while now, about
them establishing their own R&D centre just outside Coventry,
so there are real signs that they are looking to invest in the
region. Structurally, yes, we have no oil and gas, no pharmaceuticals,
no big spenders, we have already established that, but we can
add value to every single company in the West Midlands. It may
not be in those high valued added sectors, but every single company
is capable of being in the value sector.
Dr Hutchins: This is where the
RDA/Advantage West Midlands needs to take some risks. Through
our partnership with companies like QinetiQ, we are looking at
building a partnership around quantum technology in Malvern. Now,
that might be of interest to the world's leading academics but
also to companies like Intel who can see world-leading R&D
going on in a place like Malvern and migrate to participate in
that. Then you get the spin-out companies emerging from that and
our investment in Malvern Hills Science Park—we are on Phase
3 of those investments—house those types of companies, and
projects like landing the national hub for the Energy Technologies
Institute with the partnership or universities from within and
outside the region, leveraging in a billion pounds of public and
private sector investment, becomes a magnet for the world's leading
academics, and then companies start to pay interest and follow
suit. So that is our marriage broker role.
Q266 Chairman: We will be hearing
about more about the Quantum project tomorrow, but it has your
full support?
Mr Laverty: Yes.
Q267 Chairman: I was with a metal-bashing
business in my constituency which had been family controlled and
the family said: "No, we cannot develop this business, we
have not got the management expertise, we are going to sell out",
and they sold out to a new team which is innovating in a whole
stack of ways. The product is a very basic product but they are
making it better, they are testing it better, marketing it better
and they have all sorts of hidden innovation which does not feature,
and they are turning this business into one that is really going
places. To what extent can you do that on an incremental business
with the hidden innovation taking place day in and day out in
some small and medium-sized businesses? To what extent can we
nurture that, or do we have to change gear and develop whole new
industries in this direction?
Mr Laverty: Generally, we cannot
afford to just write off what is here; we cannot afford to say:
They are doomed to failure, they have no value added activity,
they are going to die out. We have to work with what we have and
try and better what we have. One of the things we have majored
on as an RDA is improving leadership and management skills across
the region, and we see that as an activity that complements what
the LSE does which tends to be lower level skills training. The
start of the answer to your question is encouraging some of those
firms to develop their workforce, and develop the leadership and
management of their organisations. That is the starting point,
and you have some chance of innovation being driven out, and some
chance of them diversifying their product base, modernising their
company and looking to invest in the business, but it is an uphill
struggle for some of these organisations, particularly in the
Black Country and North Staffordshire, where people do see investment
in their workforce as a cost to the bottom line rather than an
investment in the bottom line.
Dr Hutchins: There is a role here
through our regional economic strategy with our partners, particularly
in the private sector, through the cluster programme, the sector-based
work that we lead in the regional partnership with the private
sector. One of the key issues for the 13 sectors or clusters that
we support in the West Midlands is skills; another is innovation
and companies getting together, talking about their needs and
challenges, sparking off each other, looking at their innovation
priorities, how they can be supportive, and the work that Business
Link in the West Midlands takes forward through its innovation
advisory service to help those individual companies and the sectors
develop their innovation and R&D needs.
Q268 Chairman: So you are saying
the professionalisation of management and small and medium-sized
businesses is a key part of developing a higher added value economy?
Mr Laverty: We believe so, Mr
Chairman.
Chairman: I might talk to you
informally about getting a better handle on what you are doing
in that area to encourage that often very challenging process,
because family businesses often do not like being told how to
run their affairs!
Q269 Mr Bailey: You will have heard
earlier some, I think, reasonably complimentary things said about
you by the academic sector and your involvement in bringing industry
and academia together. How would you define what you have done
to encourage links between the two?
Mr Laverty: We were late, I am
afraid, so we did not hear those very complimentary comments unfortunately!
Q270 Chairman: Your Chairman did.
Mr Laverty: We have had a very
strong relationship with the region's universities since we were
created. If you ask them, I would hope they would say almost to
the last institution that we work positively with them, we have
seen innovation and interaction with universities as something
that is fundamental to the West Midlands' future. We are working
with the business base; we have to try and make it as good as
it can be to try and add value to our existing businesses, but
we are looking to things like advanced materials, energy, digital
media and some of tomorrow's businesses in the sector as the West
Midlands future. Of course, that requires us to work very closely
in collaboration with universities, not least Coventry University
in this building that was funded by AWM, and there are two other
buildings on this campus, an eye health centre and a digital media
hub, both funded by us. So we have a strong relationship. We believe,
and Michael Clarke from Birmingham University also is quoted as
saying, that out of all the RDAs we have spent more money with
our universities than any other RDA and we are proud of that.
By our reckoning it is about £110 million over the three
years that we counted up those interventions. So we have a very
strong base. I am not saying we have cracked it but we understand
now, having looked at the region, at the drivers and the productivity
in the region, how important it is for this region to work on
innovation, on skills, and to get the universities and the businesses
in this region collaborating. It is very important that we understand
the sign and the challenge now.
Dr Extance: We have the Lord Stafford
Awards in the region which celebrate and try to expose, if you
like, some of the real successes of universities working with
businesses, and one of the most successful schemes is the Knowledge
Transfer Partnership, which is a national scheme, and that continues
to provide really good examples of companies of all shapes and
sizes working with the university base, and almost inevitably
employing, then, the associate that works on the project as a
full-time employee after the project is finished. Forgive me for
giving a metal-bashing example of Metallisation, metal spraying,
where their product worked but they did not really understand
it. As a result of working with Aston University they understood
the fluid flow in the spraying head; they got some software developed,
and transformed a fairly hit-and-miss spraying operation into
a very slick, computer-controlled, well understood process, so
that is a good example. The INDEX voucher scheme, again, is already
paying a great service to us, both in terms of the businesses
being helped by having this small amount of university work done
for them, but also for the university themselves in understanding
how to work with the SME community, and understanding the language
they use and, indeed, all the issues of timeliness and so on.
So I would cite knowledge transfer partnerships as a growing and
effective way of working in some detail, and we will be expanding
the number of those in the next few years, and the INDEX really
as an introduction of that marriage service. Already we are seeing
a number of those companies wanting to go on to Knowledge Transfer
Partnerships in which they have to invest £35,000 of their
own money.
Q271 Chairman: We have heard a lot
about INDEX vouchers. Can you just explain it in a little bit
more detail? Not now, but in writing subsequently.
Dr Extance: With pleasure.
Mr Bailey: Getting on to KTPs,
representing West Bromwich West I, if you like, represent the
heart of the metal-bashing industry, and on visiting companies
I have had extremes—some singing the praises of Advantage
West Midlands and others saying it just is not worth the hassle
of getting involved—and some of it does seem to be reflected
in some of the evidence we have had about involvement in KTPs.
From the perspective of Advantage West Midlands what do you see
as your role in, if you like, publicising KTPs, but also breaking
down the barriers of those companies that might benefit from them
but that up till now have not?
Q272 Chairman: It may help you to
know that our previous witnesses were very critical of the bureaucracy,
the complexity of the KTP process nationally.
Dr Extance: The process for KTPs
is a national one; we have just begun work with the national body,
the Technology Strategy Board, around extending the regional version,
and we are looking to see how we can simplify that process because
it is recognised nationally as complex. What is happening through
projects like INDEX and others in the region of schemes which
are not as sophisticated as Knowledge Transfer Partnerships is
the beginning of a relationship with the university, albeit a
small one, that then enables the business to understand the university
and to work better, so what I would say is to go in cold with
a small company with a Knowledge Transfer Partnership as your
entry ticket is very tough, but to warm them up, if you like,
to engage them, either through the voucher or some other small
scheme so that people get to know one another and really understand
the issues, is the most effective way. In terms of publicity,
again, we have had over 600 companies applying for the INDEX voucher
since last March, and we have awarded over 220 vouchers to companies,
so over 600 companies now have, in a sense, specified a problem
they want to work on. That is quite a substantial number of companies.
Dr Hutchins: To supplement that,
we see the link between the importance of the innovation and the
R&D agenda, and the skills agenda. We often see where we have
excellent leadership and management in the organisation of a company,
no matter what size. If the chief executive, the managing director,
has that drive and that foresight then we get the connection with
the innovation agenda.
Q273 Mr Bailey: Looking at my own
particular locality, which in many ways highlights the problem,
would you say the absence of a higher education establishment
within—and Wolverhampton might object but I am talking about
the West Bromwich area, both impacts on the skills and aspirations
of the potential workforce, but also the culture of the actual
business management within that particular locality.
Mr Laverty: I think you can make
that general connection. We know that businesses like to work
with higher education establishments that are in close proximity.
A face-to-face meeting than having to drive or getting on a plane
or train. Sometimes collaboration needs to be able to use physical
infrastructure, you might have to go to a university and use a
lab or whatever, so that is very difficult. The big organisations
in the region, the Jaguars, the Land Rovers, the JCBs, go anywhere
in the world but for the local organisations, to try and encourage
their first step on the ladder, it has to be local, face-to-face,
and something they can fairly immediately see some value to.
Q274 Mr Bailey: We have obviously
touched on some barriers. Are there any others that you see being
a problem to KTPs being established, which have not been covered
by the evidence so far?
Mr Laverty: It is more of a general
point. There are parts of the region, and certainly Adrian Bailey's
constituency might be one, where there is a cultural issue where
lots of the organisations do not seek out help and, when they
do, they want help on their terms so it is typically "Can
we have a grant and don't tell us what to spend it on, just give
it to us, thank you very much", and, of course, that is not
what we are trying to do. As my colleague has said, there needs
to be a certain amount of enlightenment here otherwise good money
follows bad. These organisations need to be prepared to help themselves,
and need to have done a certain amount to demonstrate they are
prepared to help themselves really and truly before it is worth
anyone helping them, otherwise you are just wasting money, and
there are parts of the Black Country and North Staffordshire that
have that cultural deficit that other parts of the region do not
have.
Dr Hutchins: Hence one of the
priorities of the Regional Enterprise Board is to promote an enterprise
culture in the region. We have particularly focused on two or
three groups, women's enterprise, young people's enterprise, and
enterprise amongst black and ethnic minority groups, trying to
stimulate the market in those three areas, with some notable success,
particularly in the women's enterprise area.
Q275 Mr Bailey: Moving on to the
Science City investment, you have mentioned Birmingham in particular
and I do not want to go over old ground, but what basically are
you looking for from it?
Dr Extance: Science City is a
fairly big programme for us, and it tries to recognise that if
we are going to promote the West Midlands and Birmingham as a
place where high technology companies can come and invest and
grow then we have to do several things, and one of them is to
make sure our basic research infrastructure is capable, as we
have talked about. We have selected those three areas, energy,
advanced materials and translational medicine, as three big areas
where we believe, by building a research infrastructure, we raise
the presence of Birmingham and the West Midlands and therefore
we would hope to attract companies to want to locate here for
research and development to be carried out in our universities.
The second key outcome is clearly around knowledge transfer and
spinning out and growing companies around the region as a result
of our investment in that initial early and translational stage
of research, so we have already seen a number of companies showing
interest because we have invested in these areas and wanting to
be part of our activity. It is no surprise we are seeing the beginnings
of companies like Tata, like Ericsson, wanting to build research
centres in the region, because they can see that the university
base is credible and is working together. I think the collaboration
of two major research universities, Warwick and Birmingham, that
previously had limited collaboration, is a major step because
it now means that businesses can access skills from both establishments
through that collaboration. The Higher Education Funding Council
backed up our investment with another £10 million of their
money as a result of our work on getting those universities to
collaborate, so we are already leveraging research money into
the region which will help deal with our problem about R&D
expenditure. We are already beginning to lever in Research Council
Money and HEFCE money on the back of our investment.
Q276 Miss Kirkbride: I want to ask
you for your views on R&D tax credits, whether they are good,
bad or too mixed, depending on what sector you are in. Or what
should we do instead?
Dr Extance: In principle, it is
a good idea. The concept is good, and clearly we are seeing a
number of the larger companies gaining considerable benefit from
them. There is anecdotal evidence, and I have not done the valuation,
from companies in the region that it is quite a difficult process.
A number of them just do not bother and their professional advisers
are not fully up to speed, so I think there is some work to do
with professional advisers to make sure they are capable of supporting
it. I have one anecdotal example from a company I will not name
because this is a public forum who said to me that, as a result
of having the R&D tax credit, their senior management ploughs
back the credit money into their longer term R&D, and without
that R&D tax credit they would have a much harder job of having
their longer term, more blue skies orientated R&D programme,
so that is a good news story, but there are some issues around
the take-up of the R&D tax credit which I think may just be
a matter of time and experience.
Q277 Miss Kirkbride: But primarily
the big ones do it and the small ones do not?
Dr Extance: My view is there is
a greater take-up amongst larger companies than small.
Q278 Miss Kirkbride: Is there another
way of doing it?
Dr Extance: In a sense we have
a portfolio of ways of doing it; we have vouchers, knowledge transfer
partnerships, collaborative R&D through the Technologies Strategy
Board, we have R&D tax credits -
Q279 Miss Kirkbride: You have so
many things you are all confused?
Dr Extance: I would say you need
a portfolio of offering because companies just like us, they behave
and respond differently to different things. One man's KTP which
is wonderful is horrendous to another guy, who says the R&D
tax credit is absolutely fantastic. So you need a spread, there
is no single solution. The R&D tax credit offers a very attractive
one to some companies, but it maybe does not provide the stimulation
to do R&D. If companies are doing it anyway it provides the
feedback, but it does not necessarily stimulate people to do R&D
in the first place.
Dr Hutchins: This is one of the
reasons why in the region we are leading the business support
simplification programme on behalf of BERR and Treasury to try
and reduce the plethora of schemes out there and to make better
use of public money, to avoid duplication and to rationalise the
programme down to a portfolio of 30 odd schemes in the region
which are available regionally and nationally, and the RDAs are
leading that in each of their regions.
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